Are Americans Better Off than Their Parents?

A new report from the Pew Economic Mobility Project has some observers celebrating how well Americans are doing compared to their parents. But the report’s figures, upon closer inspection, give little cause for celebration.

The latest report from the Pew Economic Mobility Project unambiguously concludes that the “vast majority of Americans have higher family incomes than their parents did.”

The report, entitled Pursuing the American Dream: Economic Mobility Across Generations, finds that “84 percent of Americans have higher family incomes than their parents did” when incomes are adjusted for changes in prices and family size.

The Pew findings seem to give some cause for cheer. The problem is that they don’t square with Census Bureau statistics that show steep declines in men’s wages over the past forty years at every age level.[pullquote]Families today have higher incomes, but they earn those higher incomes by working more.[/pullquote]

Families today are making more money than families did thirty or forty years ago for two basic reasons. First, families have more people working, especially women. Second, working people are working more hours, especially women.

These two factors don’t necessarily make for better-off families. Yes, families today have higher incomes, but they earn those higher incomes by working more. All the while, in per-hour terms, they’re actually making less.

Even in the Pew data only 59 percent of sons earn more than their fathers did. The Pew report makes this out to be an accomplishment. But people today should be making much more money than their parents did.

Real national income per person in the United States, adjusted for inflation, has more than doubled over the past 40 years. That 84 percent of families — and just 59 percent of males — are better off than their parents really isn’t saying much.

The Pew report also tackles the issue of family wealth. The report optimistically points out that 50 percent of all Americans have more wealth than their parents did.

On the other hand, the reverse is also true: 50 percent of all Americans have less wealth than their parents did. Not much progress there.

Worse, the Pew study only compares the family wealth of men and their fathers. Given the rise in single-parent female-headed households, it’s very likely that women’s median family has declined. The report is silent on this.[pullquote]Half of all Americans have less wealth than their parents did. Not much progress there.[/pullquote]

Like income, wealth should be increasing, not stagnant or declining. According to data from the Federal Reserve, total household net worth increased by 206% between 1970 and 2010 (adjusted for inflation).

With total household wealth more than tripling, it’s not very encouraging that only half of American men (and presumably less than half of American women) are better off.

Finally, the new Pew report addresses the issue of mobility. Pew found that 43 percent of Americans born into the lowest quintile of the country’s income distribution remained at this lowest income level as adults.

Similarly, 40 percent of Americans born into the highest quintile of the country’s income distribution remained in this highest-income fifth as adults.

The same “stickiness” applied to wealth, with 41 percent of the poorest and 41 percent of the richest American children staying in their categories as adults.

Despite the optimistic spin put on the report by its authors, the detailed numbers contained in the new Pew American Dream report make for pretty grim reading.

The destruction of the American dream, the report’s figures make clear, didn’t begin with the financial crisis in 2007-2008. This destruction began much earlier and has been with us for a generation or more.[pullquote]The destruction of the American dream has now been with us for over a generation.[/pullquote]

“The findings highlight the importance of better understanding key drivers of economic mobility,” Pew concludes, “for policy makers seeking to promote and protect the American Dream for generations to come.”

A more honest conclusion would be that the American Dream is dead and has been dead for three or four decades now. Americans celebrate optimism, but rose-tinted glasses don’t make the facts smell any better.

America doesn’t need optimism. America needs root-and-branch economic change.

Salvatore Babones is a senior lecturer in sociology and social policy at the University of Sydney and an associate fellow at the Institute for Policy Studies.